A Comment -- General Comments From an Expert (A Commentary)

Canadian $. Thinks this is going to get weak against the greenback because of 1) oil prices and 2) if their interest rates go up and ours don’t, then naturally the trade will be in favour of the US$. He has been moving his investments assuming that this is going to happen.

Markets. Every single pullback since the beginning of time has been a buying opportunity. However, he can’t say when the markets are going to recover. He doesn’t buy the market, he buys individual securities. He is looking for value and has put cash to work over the last few days. Avoids commodities, companies with no profits, companies that are speculative and he avoids overweighting sectors. Feels very, very comfortable about the economy. There is absolutely no reason to panic.

Markets. About a year and a half ago, he had a theme on the US$ that he has been banging the drum on. 2 weeks ago people woke up and said they wanted to be long US$’s. That has had huge implications. As a model price guy, the tectonic plates under the financial markets are moving. All over the world, people are hitting the Sell button in whatever currency, including the Cdn$, and getting into US$. This is why there is such a big impact in commodity prices, especially oil. Everyone’s secular view going forward is that the US$ wins at the end of the day, certainly over the next 5-7 years. All we are seeing are the ramifications of that risk being priced. Assets are being re-priced for that eventuality. He feels that there is a re-pricing of commodity prices. If the S&P 500 were to come down to $1760, that would be a tremendous buying opportunity for everyone interested in US stocks and US assets.

2 ETFs that you could trade the US$ in? You could buy the unhedged versions of the SPYDERs. He is inclined to this. You just Buy it and hold for about 7 years, and you should do well.

Energy. Feels that a lot of the volatility is politically motivated, and doesn’t feel it is as much global growth concerns. There has recently been some production growth out of certain areas where production had been really restrained. Libya has come on in the month of August and stronger in September. There was also an uptick in production in Iraq. Seasonally the market is very weak this time of year. We come out of summer driving seasons in the northern hemisphere, and the refiners are all switching over to diesel, distillate and heating oil grades. This is their turnaround time of the year, so demand for the crude product tends to be weak. The biggest wildcard has been on the political front. Saudi Arabia has been the balance on the market, and a move they did a couple of weeks ago which really shocked the market, is that they decided to cut their posting price. Saudi Arabia really makes the bottom in energy prices by setting a price, and if market prices go below that price, they just don’t sell any other oil.

Markets. We are in a typical correction. Investors, in the meantime, should conserve cash and avoid high beta securities. He is surprised that people are so surprised. We are seeing some really good signs of panic in the last couple of days. Big volumes, nice downturns. He had picked $14,300 on the TSX as support and we hit that and went under it today. This is a nice washout. Expects this will be the place that it rests on for a while or bounces off. There is lots of cash out there.

Energy. The Western Canadian Select, which is the heavy oil that we are exporting, is actually up a bit in the last 6 months. He has liked the oil stocks since early this year. The biggest plays of earnings growth in the Canadian economy has been the energy sector. The WTI and the Western Canadian Select differential has narrowed because the Cdn$ is down significantly. In the meantime, there have been some real good developments in that we exported 2 million barrels per day, up 35% from the same period last year. This is a record level. He expects that earnings coming through on the 3^rd quarter are going to be quite good. Has a feeling that the weakness in some of our energy stocks is because a good deal of the selling is from the US, and that US portfolio managers are not aware of how our market works. Also, Enbridge (ENB-T) is in the process of opening a new pipeline down south, which will be shipping good old Canadian heavy oil down to the Gulf, 600,000 barrels a day.

Stop Losses to lock in profits? He has tried using these in the past, but has never been successful with them. For somebody managing their own portfolios, it is very tricky. His experience was that if the market sold off for any reason (sometimes it can be quite irrational) the stock would go down, you would get taken out and the stock would bounce right back up.

Markets. Markets are clearly correcting. It depends on what market you are looking at as to how serious it is. Market correlation is changing. Some sectors are hanging in and others are not. It is setting up some real possibilities. He believes in stops. He is lucky he has chosen groups that have hung in remarkably well. He has very little exposure to commodities and basic materials as well as to industrials. He is fairly fully invested (10% cash) so he is not that concerned. There is a lot of cash on the sidelines. Nat Gas drilling should continue so he does not see a reducing volume growth. Over the summer to August he had to reduce his exposure to oil producers. It is clear that from 2000-2012 we were in a world of growth supported by China. Now we have falling commodity prices, falling energy prices and falling financing prices. This means we are in a bull market in the consumer lead developed economies. The Canadian dollar is strong relative to the rest of the world, except for the US. Focus on companies that are well exposed to the US economy. He is quite bullish on US Equities.

Pipelines. Have been the golden goose over the last 3-4 years and have been a large part of his portfolios. He believes this is the least price sensitive part of the energy complex. Oil-finding technologies are very price competitive. He likes KEY-T and PPL-T.

Gold. He is short some gold exposure (ETFs). Some are better than others. G-T has held in relatively well compared to the group. He likes FNV-T better because they are a royalty company. He has covered 2/3rds of his shorts in gold because it looks like it might take a bounce.

Markets. Feels this is just a garden-variety pullback/correction. Valuations were pretty lofty last year and we had a huge run-up. It is natural for a pause to be taken. As long as you have some cash reserves, you get to take advantage of the bleeding when it stops. You get opportunities to increase the portfolio income, to buy better quality stocks and at cheaper prices. Looking at the US unemployment chart, it effectively came off the cliff and basically ran from 4.5% to the broadest measures of 16%-17%. You’re not going to get a straight line recovery from 16% down to 4%. There are going to be people leaving the workforce and coming back in. It is going to be a lumpy process, but we are seeing consistently positive job aids in the US. That is good for everybody. US was the first into the hole and the first out. As global recovery broadens around the rest of the world, it will be better for everybody. He is going to wait until the bleeding stops. He has about 15% cash for longer-term clients and will be buying for sure.

Markets. The world has changed a lot. He was on the program at the end of August and we are in a different world now. The market is off from its highs by about 8%. Thinks we are coming to a line where investors should really be looking for those stocks that they would have liked to have bought, but were too expensive. We are at a point where we can begin to pick away at them. This is the opportunity we have been waiting for. The world has been scared by the threat of slowing emerging economies, particularly China. We have also seen the stagnating economies in Europe. There is a fear as to when the US is going to start raising interest rates. The inflationary indicators are such that he doesn’t see any compelling reason to raise interest rates to quickly or too soon. The US economy is still showing signs of expansion. Feels that Canada will be pulled along with that. Our market has suffered more than others because of our exposure to commodities, energy, etc.

Energy. Prices have come off significantly. In just the last month Brent is down more than $10, and West Texas about $10. Natural gas seems to have held in a little bit better. Part of this is with the slowing economies, and all of a sudden the surplus production from the US and inventories have built. Once economies begin to expand again, he expects there will be stronger pricing. In the meantime analysts will be moving down their cash flow and forecasts for oil/gas companies, so if you pick the financially strong ones, they are going to get through this period. In the long run you are not only picking up a little bit more attractive yield today, but you have the potential for good capital gains going forward. When buying energy stocks today, your time horizon has got to be at least a couple of years.

Markets. For the past number of years, things have been to the upside and stable. There has been a lot of worry out there, but the worry has been for nothing for the most part. The higher we go, the more people should worry, if they are going to worry about it. Human psychology is such that when things are going really well, it is going to just get better and will keep going higher. That is when a lot of people invest, and that is when they start losing money. Most of his buying is November-December and he has been looking. Has done some selling over the past month or so. Will probably buy only 2 to 6 positions starting in 4-6 weeks. When tax loss selling arrives, he will be in there buying.